China’s 2008 FDI growth up 23.58 per cent, despite last quarter decline

China's year-on-year growth of foreign direct investment (FDI) fell for the third consecutive month in December, indicating an economic slowdown, news agency Xinhua quoted commerce ministry spokesman Yao Jian as having said.

FDI, a barometer of economic growth, grew 23.58 per cent to $92.4 billion in 2008 due to strong growth mainly in the first three quarters. FDI growth fell 36.5 per cent in November and 5.73 per cent in December from a year earlier to $5.98 billion

However, December's FDI rose 12.3 per cent over November, the first month-on-month rise since July 2007, when FDI flowed mainly in western and central China, instead of the eastern region.

FDI in 2008 rose 80 per cent in western China and 36.44 per cent in central China from that of 2007

According to Yao in 2008, the outbound investment of Chinese firms excluding the financial sector rose 63.6 per cent to $40.65 billion year on year, with the increase in foreign investment in the service sector jumping 24.23 per cent from last year.

China permitted 2,562 overseas-funded enterprises in December, down 25.78 per cent year on year.

China in the past decade has been one of the biggest FDI recipients, but the current global financial crisis deepening into a recession could change the face of FDI investments into China.

From the trend so far, researchers are wary of a drop in FDI inflow this financial year while others expect a 5 to 10 per cent drop in the first half and a pick up in the second half.

The China Daily quoted senior ministry of commerce researcher Mei Xinyu saying he was "not optimistic" about this year, and feared that FDI could even "see a small drop", with senior analyst with China Economic Business Monitor, Su Chang, saying FDI could fall by 5 to 10 per cent in the first half of this year, before turniong positive in the second half.

Commerce ministry data shows the top source of FDI last year was Hong Kong,  at $41 billion,  a 48 per cent annual increase, followed by British Virgin Islands providing $15.95 billion, a 3.62 per cent decline since 2007.

FDI from Japan rose 1.76 per cent to $3.65 billion, followed by South Korea with $3.14 billion, representing a 14.76-per cent decline, the largest drop and the US with $2.94 billion, up 12.54 per cent.

The service industries (excluding banking, insurance and securities) were the major FDI recipients, drawing $38.1 billion, or 24.23 per cent more than in 2007.

The ministry on its part is continuing to encourage FDI, especially in new technologies, environmental protection projects and the service sector and the government will will expedite drafting policies favorable for FDI investments in the relatively under-developed central and western regions.

Chinese commerce minister Chen Deming said recently that FDI helped generate about 55 per cent of the country's exports.

The Chinese government has been announcing new plans and policies, including the massive $586-billion stimulus package, almost every week since early November to boost economic growth.

Commerce ministry data for 2008 showed Hong Kong, as the top source of FDI, pumping $41 billion, a 48 per cent annual increase, followed by British Virgin Islands with $15.95 billion, less by 3.62 per cent than its 2007 contribution.

The other major FDI inputs on an annual basis were from Japan which rose 1.76 per cent to $3.65 billion, followed by South Korea with $3.14 billion, highest fall by 14.76 per cent and the US up by 12.54 per cent to $2.94 billion.

He added that ministry will continue to support FDI, especially in the service sector, environmental protection projects and new technologies. The government will consider the under-developed central and western areas while formulating FDI encouraging policies for speedy execution.

The global economic slowdown has had an impact on China's economy, with many sections taking a hit like automobile sales, slowed to 6.7 per cent in 2008 after a continuous double-digit growth in the past five years.(See: China's auto sales post slowest growth in a decade) affetcing the country's, foreign exchange reserve growth, which was also the slowest since a decade in the fourth quarter (See: China's forex growth slows falters for the fist time in a decade)

 However, China's Premier Wen Jiabao  announced this month that China would be the first to recover from the global financial crisis and would come out with more measures in the coming months to prop up the sagging economy (See : China aims to be first to recover from global financial crisis) 

The Chinese government had announced in November, a massive $586 billion stimulus package to boost its economy and to stimulate growth.(See: China pumps $586 billion to bolster economy)